Research issued today by property investment advisers Assetz® will make interesting reading for those trying to work out if property prices have reached the bottom.
Assetz have made something of a name for themselves by helping investors identify worthwhile investment opportunities in property. They look around the so called "distressed" part of the property market; those properties that "must" be sold. Such properties are typically sold at auction and may be owned by someone in financial difficulties, a lender [having repossessed the property] or a developer desperate for some cash. The market activity in this "distressed" part of the property market has an implication for the rest of the property market...
Assetz report that developers have started to raise prices and that prices achieved on properties at auction have started to plateau since the New Year. Many house builders are running low on stock, having downed tools on sites back in the summer of last year. Future stock will only be built if prices are above cost, so it could be some time before new supply comes onto the market.
Assetz also say that House Price Indices (such as the Nationwide House Price Index) that showed falls last year of between 10%-16% will continue to show falls for some months to come. They go on to say that investors and home buyers should appreciate that these indices are significantly delayed in terms of data capture, by as much as three months. Why?...
Sales that are agreed now do not reach the house price data until the buyer moves in - this normally takes 3-4 months. Buyers who wait for the house price indices to show positive growth will have missed the bottom of the market by a number of months!
Stuart Law, chief executive of Assetz, said "If the distressed property market had a house price index, it would have already reached the bottom and there are clear signs that these prices are beginning to turn upwards. There are multiple bidders for much residential distressed property - an early indicator that the wider market trend will change in the near future. Savvy investors know they will secure best price while consumer sentiment is at it's worst, not when the press is reporting a market recovery."
Prices have reached such a point in this sector of the property market that it now makes financial sense for investors to invest in property in order to earn a return from renting (referred to as the yield) of between 8-10%. Compare this to the miserly rate of interest now paid by most banks! Similarly, many of the people we see who are currently renting find that their new mortgage payments are less than their rental payments.
We don't want to herald the arrival of the "Green Shoots of Recovery"; it is interesting to note the opinions of others in the market place - especially those that look to the longer term and see this market as representing an opportunity.
UPDATE 29/1/2009
There is little surprise today that the Nationwide have reported a further fall in house prices for January of 1.3%. This really reflects activity at the back end of last year. As the "completions" (people moving into their new home) that took place from sales agreed in November and December last year, expect further falls to be reported over the coming months.
Nationwide note that the drop over the past three months has eased a little, but it is too early to draw any conclusions from this.
They also report, as I have in my previous blog entry, that new buyer registrations at estate agents are up significantly. Again, we would point to the huge demand that has not yet translated into activity as people may feel insecure about their jobs (take redundancy cover!) or they think getting a mortgage is difficult. It will only take a few items of good news and slightly easier lending criteria on mortgages to get the whole thing going again!
As we trundle along the bottom of the market, there are some great buys to be had.
